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Steindler: Mercy Iowa City, community harmed by sale delay
Court filing says hospital is losing staff, patients are canceling appointments
Oct. 25, 2023 8:25 pm, Updated: Oct. 26, 2023 8:45 pm
IOWA CITY — Mercy Iowa City’s delay in closing its bankruptcy sale is hurting hospital operations by scaring away patients and providers, eroding community confidence and adding expense to an estate already depleted of resources, according to a court filing this week asking a judge to force the issue.
“As the manager of the ortho service line, Steindler surgeons and professionals are on-site at the hospital daily,” according to a statement that Steindler Orthopedic Clinic filed Wednesday in support of a recent motion to force Mercy to comply with the results of its auction and move forward with the $29 million assets sale to its largest bondholder, Preston Hollow Community Capital of Texas
“Accordingly, Steindler is acutely aware of the negative impact that the delay in bringing the sale process to a timely conclusion has had on the ongoing hospital operations. Steindler is also experiencing a negative impact because Steindler patients have canceled or postponed surgeries scheduled at Mercy.”
Preston Hollow and master trustee Computershare, who tapped the more than $62 million that Mercy owes them as secured bondholders to win the Oct. 10 auction for Mercy’s assets, last week asked the U.S. Bankruptcy Court to compel Mercy to comply with the auction results — reporting the sides were at an impasse following debate on how millions of Mercy Foundation dollars can be used.
Preston Hollow and Computershare — which, in partnership with Los Angeles-based American Healthcare Systems, aim to maintain a community hospital in Iowa City — accused Mercy of trying to use resources from its nonprofit foundation to cover attorney fees instead of its operational losses.
That, according to the bondholder, would saddle it with more expenses during the transition to new ownership. A judge has set a hearing on that issue for Monday, and Steindler in its Wednesday filing urged the need for swift resolution.
“The delay by (Mercy) in finalizing the sale and gaining court approval, now entering a third week, is detrimental to the bankruptcy estate and, more importantly, to the ongoing operations at the hospital that Mercy continues to own and operate,” according to Steindler, highlighting its specific implications.
“Steindler performs hospital inpatient and outpatient cases at Mercy today and needs a viable community hospital in the future,” according to the court filing.
Steindler noted five areas being harmed by the delay:
- Mercy is struggling to retain health care professionals and staff, with Steindler reporting knowledge of "several health care professionals, including physicians, nurses, and (operating room) staff, choosing to leave Mercy and pursue more stable employment opportunities due to the perceived uncertainty as to the future of the sole community hospital in Iowa City.”
- Uncertainty around the hospital sale, along with provider departures, is disrupting patient care and services, “impacting the decisions of members of the community as to where to obtain their hospital-based medical services and needs.”
- The longer the sale takes, the more confidence erodes among “the remaining hospital staff, professionals, and community members.”
- A delay in finalizing the sale with the court is stalling progress on the transfer and transition to new management, “who today should be addressing regulatory approvals, payer contracting, staff hiring, and other matters that are attendant to a transfer of ownership and operation of a community hospital.”
- And the impasse is costing money — even as the very dollars being wasted are central to the discord between attorneys representing Mercy, unsecured creditors and the bondholders.
“(Mercy) appears to be delaying finalizing the sale to (Preston Hollow) to gain leverage in those discussions — all of which is resulting in the enormous professional fees that have been submitted and continue to accrue in this Chapter 11 proceeding,” according to Steindler’s court filing.
Although a summary of proposed assets Preston Hollow included in its winning $29 million bid haven’t been made public, the Steindler filing suggests some Mercy assets were left out — and could be mined for resources to pay back creditors and pensioners.
“(Mercy) and the unsecured creditors committee have other sources of potential assets, including a secondary auction of the assets not included in the Oct. 10, 2023, auction and other possible claims previously cited by (Mercy),” the filing said.
When asked for specifics on the recent departures and cancellations his team has experienced at Mercy, Steindler President and Chief Executive Officer Patrick Magallanes told The Gazette they’ve tallied 18 cancellations, referrals elsewhere and postponements pending the sale outcome.
“Mercy staff is generally on edge about the future,” he said. “There has been little communication about the future state, which is understandable because there is not a declared ‘new owner’ yet.
“There have been a number of resignations over the past 30 days, and excellent, caring folks are leaving. This is alarming to our team and should be to those hoping to see a new nonprofit hospital open.”
Comments: (319) 339-3158; vanessa.miller@thegazette.com
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